Hybrid Transfer Prices Homework Help

One of the most important aspects of international firm and its business association is transfer pricing. Transfer pricing is a price which is used to capture inter company transactions of a big multinational firm where several smaller sub units within the business are treated as a separate legal entity in bookkeeping. With our detailed analysis, you will get a better idea of concepts.

For example, there is a company X which manufactures batteries for different purposes. Now, Company X is taken over by company Z who also owns company Y which produces cars. Company Y now wants to purchase batteries from Company X. Since both of X and Y have the same parent company but have separate books of accounts, they require a transfer price for transacting with one another.

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What is hybrid transfer pricing?

Transfer Pricing can be based on cost of product as well as market variables. In such situations, the transfer price is usually an average of both market price of comparable items as well as cost incurred in the production of the product.

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Mechanisms of hybrid transfer pricing:

Negotiated Pricing:

When this happens in a company the managers of the respective buying and selling companies negotiate the conditions of the transfer. For example selling division might only sell if it achieves some pre agreed amount of profit. Used when there is volatility in the market.